European natural gas prices finished higher for the first time in eight days on Monday as the market once again focused on supply shortfalls this winter.
A wave of liquefied natural gas (LNG) cargoes has been landing on the continent as traders looked to capitalize on soaring prices in recent weeks that hit a record of nearly $60/MMBtu Dec. 21. Warmer weather and the additional supplies helped to temper prices. Celsius Energy noted Sunday that natural gas inventories in Europe increased for three days straight and cut the storage deficit to the five-year average from -628 Bcf to -569 Bcf.
European stocks are still at only 56% of capacity versus the five-year average of 72% at this time of year. Russian flows to Northwest Europe are also at their lowest in more than three years, down 36% from the beginning of December, according to Schneider Electric. Russian deliveries into Germany on the Yamal-Europe pipeline have also been stopped over the last two weeks, once again raising the specter of supply shortages once the flotilla of LNG vessels have delivered their cargoes.
Meanwhile, Electricite de France extended outages at two nuclear reactors. Eleven of the country’s 56 reactors are offline for maintenance that was delayed by the pandemic. France is an electricity exporter and the outages could spur the need for more natural gas. The nation’s grid operator warned of electricity shortages last week in the event of a cold snap given the outages.
Warmer weather is expected across parts of Europe and North Asia during the first half of January, but Europe could again be competing aggressively for LNG cargoes with buyers in Asia, who have been on the sidelines amid a jump in temperatures, high spot prices and strong storage stocks of their own.
Engie EnergyScan said in a note to clients Monday that Indonesia has banned thermal coal exports because of concerns it might not be able to meet its own power demand.
“This could increase LNG needs from China, India, Japan and South Korea, which together received 73% of Indonesian coal exports in 2021,” Engie analysts said.
JKM spot prices were assessed below $24/MMBtu on Monday amid weak buying. But the spread between European and Asian markets has converged in recent days as European prices have slid. The Title Transfer Facility contract for February delivery jumped by about $3 on Monday to finish above $26.
In other news last week, the European Union indicated it would classify some nuclear power and natural gas assets as green investments that can help curb emissions. The European Commission said Saturday that it has started consulting EU member countries about the proposal.
South Korea has also made a similar distinction for natural gas’ role in helping to cut emissions. LNG has been included in a category to accelerate the country’s climate ambitions. Both the EU and South Korea faced criticism from some nations and environmental groups for the decisions.
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